The American Labor Market in the 19th Century •The American labor market is regarded as the most flexible (efficient) market among developed countries---there is easy geographical and vertical mobility with considerable wage flexibility. •When did it acquire these characteristics? Was it always this way? What was the role of immigration? Nineteenth Century Growth of the Labor Force • Rapid growth and rising labor force participation. • 1800-1860 growth rate of 3.1% and 1860-1900 2.8% • Growth driven by fertility (declining over century) and waves of immigration driven by the business cycle. Jumps in immigration in the 1840s (Ireland and Germany) and then 1880-1910 (Eastern and Southern Europe) Margo (CEH, 2000): Growth of Labor If LFPR in 1900 = LFPR in 1870, then the rate of growth of p.c. income 1870-1900 would have been 20% lower Margo (CEH, 2000) Variations in Labor Force Participation Agriculture to Manufacturing, Commerce and Services Structure of Employment---reflects age and literacy, indicators of human capital By 1900, of men: 23% farmers 19% farm laborers Blue Collar: 25% unskilled 40% are semi-and skilled 5% Services 7% clerks-sales 18% professional and managers Wage Differentials • Constitution forbids barriers to labor, capital and goods mobility. • Geographic wage differentials indicate (1) spatial extent of market, local? regional? national? (2) differences in regional living standards, quality of life (ND vs. CA) • Occupational wage differentials measure (1) shifting structure of the economy, (2) inequality-- -does growth lead to inequality? • One hypothesis: if capital-skilled labor complementary, fall in price of capital leads to rise in skilled wages if their labor is inelastic--- but evidence from 1850 shows capital a substitute for skilled labor and a complement to natural resources Only antebellum period not late 19th century studied---here little geographic or occupational trend Rosenblum (JEH, 1993) • How to measure integration? Law of one price. However large demand or supply shocks can cause temporary differentials, depending on speed of adjustment, which is in turn dependent on information and migration costs. • Previous studies compare daily wage rates within narrowly defined occupations. Often scattered and thin samples. His own (JEH, 1993) found persistent real wage gap North and Central (1870-1898) of 20%. Compared to another study where differentials in 1890 only 3- 5%. • Earnings data: broader coverage, based on census data. How are earnings imputed? Equalized? Equalized? Problems? The model? Rosenblum (JEH, 1996) • Concludes that there was a well-integrated (equal if not greater than today) labor market in Northeast and North Central regions by 1879 from Portland (ME) and Wilmington (DE) to Chicago (IL) and Witchita (KS) and Omaha (NB). • Emerging labor market in the South but South and West remained unintegrated with Northwest and North Central. More Integration: Kim (JEH, 1998) • Why do region’s differ—economic specialization. • Can economic integration eliminate specialization--- resource endowments? External economies? • How to measure specialization? But…What of the Condition of Labor? Income = (wage rate*daily hours of work)*days worked per year Antebellum real wage growth---limited data. Data for civilian employees of U.S. Army The Growth of Real Wages • Estimated time trend 1860-1900 is 1.1% p.a. for non farm laborers, and for agricultural workers without board 0.9%. • Overall 1800-1900, real wages increase at 1.0 to 1.1% and p.c. incomes at 1.1 to 1.2%, implying real wages 270 to 330 higher by century’s end. • Difference in wages and incomes due to higher labor force participation rate and higher annual hours of work. • Better off? Life on the farm or small town 1820 very different from factory in Chicago in 1900. Hours of Work in Manufacturing?: 1st study 1832 manufacturing day in Mass: 11 hours 10 minutes Why did manufacturing weekly hours decline? • Government regulation. • 1840 President Van Buren establishes 10-hour day for federal employees. Pressure at state level but little happens. • After Civil War, organized labor campaigns for 8 hour day. By 1896, 13 states have maximum hour days, especially aimed at women, but enforcement except in Massachusetts is weak. • Compulsory schooling laws, increased attendance but effect on work small. But for whole economy, annual hours of work rise! • They increase 1800-1900 by about 10%. • Annual hours greater for indoor work, shift from agriculture to manufacturing. Less seasonality---less downtime. • Factory owners want to keep capital in operation—as grow in size, production more capital intensive. • Increased integration, reduces seasonal element of labor supply. Postbellum real wages of nonfarm workers NBER BUSINESS CYCLE REFERENCE DATES 1870s Depression Peak Trough December 1854 June 1857 December 1858 October 1860 June 1861 1890s Depression April 1865 December 1867 June 1869 December 1870 October 1873 March 1879 March 1882 May 1885 Civil War March 1887 April 1888 July 1890 May 1891 January 1893 June 1894 December 1895 June 1897 June 1899 December 1900 Cyclical Instability of Wages • Nominal and real shocks are persistent, causing real wages to deviate from long-run path. • In long-run prices are ―neutral‖ to nominal wages one-for-one movement, but substantial short-run deviations. Since antebellum prices are procyclical, real wages are countercyclical. (Note: only employed are better off.) • By 1900 wages more sluggish in responding to nominal and real shocks compared to antebellum period. • But wages in 1900 more flexible than today. Unemployment—Pre-1914 not the Golden Age James and Thomas (JEH, 2003) • Natural rate---higher before 1914 compared to post-World War II • High turnover and labor instability: Goldin found in Kansas BLS that 95% of all laborers experienced unemployment in last 3.7 years. High quits, layoffs and dismissals for blue collar employees. Frequent short spells of unemployment— many ―floaters‖ in the economy. Cyclical industries include manufacturing, mining and construction Labor Relations • Shift from artisanal shop to factory--- difficult shift, very different organization of work---repetitive more intense work, monitoring with incentives (piece rates) and discipline. • Resistance—result women, children and immigrants fill factories. • Most factories not mechanized or large (big exception are textiles) until after Civil War. Mass textiles workers 1860 Foudrinier Machine is from Ballou's Pictorial, June 9, 1855. A Foudrinier Machine is used in paper mills to make book paper, leaving the paper on reels to dry so that it will be ready for the finishing process. Antebellum Unions • Working class movements short-lived before Civil War. Strikes pro-cyclical---recessions kill unions. Severe panic of 1857 turns into recession and unionism ceases. • Legal Standing: – NY Supreme Court---union members who refuse to work with non-union labor guilty of criminal conspiracy. (Strict construction of Article 1, section 10 U.S. Constitution that states cannot pass laws abrogating contracts.) – But Mass. Supreme Court (1842) formation of union not evidence of criminal conspiracy---right to press for closed shop. 1834 Boston Transcript reports on the Strike • "We learn that extraordinary excitement was occasioned at Lowell, last week, by an announcement that the wages paid in some of the departments would be reduced 15 percent on the 1st of March. The reduction principally affected the female operatives, and they held several meetings, or caucuses, at which a young woman presided, who took an active part in persuading her associates to give notice that they should quit the mills, and to induce them to 'make a run' on the Lowell Bank and the Savings Bank, which they did. On Friday morning, the young woman referred to was dismissed, by the Agent...and on leaving the office...waved her calash in the air, as a signal to the others, who were watching from the windows, when they immediately 'struck' and assembled about her, in despite of the overseers."The number soon increased to nearly 800. A procession was formed, and they marched about the town, to the amusement of a mob of idlers and boys, and we are sorry to add, not altogether to the credit of Yankee girls....We are told that one of the leaders mounted a stump and made a flaming Mary Wollstonecraft speech on the rights of women and the iniquities of the 'monied aristocracy,' which produced a powerful effect on her auditors, and they determined to 'have their way if they died for it.'" Postbellum Unions • Growth of unionism during Civil War—several hundred thousand members of craft unions. • Strikes more winner-take-all than today, half a victory for labor. • Knights of Labor founded 1869, rapid growth by 1886, 750,000 (very diverse) members. Bombing at Haymarket Square rally in Chicago 1886. Public reaction and political repression, it collapses. Haymarket Riot Rise of the Craft Unions • American Federation of Labor (AFL) by 1900, 500,000 members. Development of written contracts. • In 1914, 16% of industrial labor unionized---1880 only 3%. Meanwhile, UK 23%, France and Germany 14%. • Why didn’t American labor embrace socialism? Early universal male franchise? Greater belief in private property? High immigration? High internal migration? Violent repression? The Role of Immigration in the Development of the American Labor Market Antebellum Immigration and Postbellum Immigration Immigration Joseph Ferrie, Yankeys Now (1999) Predominance of British, Irish and German immigrants--- Irish Famine and 1848 Revolutions in Antebellum Era Ferrie (1999) • Concentrated effects in the North • In textile mills of Lowell where 90% of workers were native born in 1849, only 35% native born in 1855. Replacement and ―de-skilling‖ substitution of skilled for unskilled plus capital. • Backlash, 1850s labor organizations, strikes and support for a ―nativist‖ creed. Rise of the ―Know-Nothings‖ • Order of the Star-Spangled Banner grew from secret society of 43 in 1852 to national political organization that claimed one million in 1854. Elected 8 governors, many congressmen and mayors. • Philadelphia Sun: “the enormous influx of foreigners will in the end prove ruinous to the American workingman, by reducing the wages of labor to a standard that will drive them from the farms and workshops altogether, or reduce them to a condition worse than that of Negro slavery.” • Know-Nothings was to increase years to become naturalized but not halt immigration. Seems mild…but • Ferrie (1999) found that impact greatest on skilled native-born workers in northeastern cities. Minimal effects elsewhere-----this result very different from widespread effects found by Goldin and others at turn of century when eventually restrictions on immigration were adopted. Prosperity? Post-Civil War Immigration The Tidal Wave The ―new‖ immigrants arrive and….? Nativism? Anti- Catholicism? Antisemitism? racism? Or Economic Factors? But how to restrict? The Literacy Test: immigrant must show that they can read several sentences of the Constitution in any language of their choosing Presidential vetoes only real block, a matter of time for a recession, war or labor unrest. From 1897 to 1914---17 million slipped through. Literacy Test becomes law in 1917 1917 Literacy Test effective? • From 1905-1914 when immigrant flow more than one million per year, the literacy test would have lowered immigration from southern and eastern Europe from 712,000 to 445,000. • The Emergency Quota Act of 1921 limited southern and eastern Europeans to 156,000 and the 1924 and 1929 acts lowered it to 20,000. • Quota Acts of 1921, 1924, 1929---severely restrict immigration until the 1960s. Why Did the U.S. Slam the Door Shut in 1921? Goldin (1994) • AFL and Knights of labor come out in favor of a test in 1897, and enjoyed some support from capital in labor unrest of 1890s. • New immigrants from southern, central and eastern Europe. But---the U.S. is just part of global market---- effects of First Era of Globalization (Williamson, 1998) • At the beginning of 19th century, a technological revolution in Britain that spread slowly led to a big divergence in real wages and living standards across countries. • Decline of transport costs and tariffs----- substantial convergence of factor prices between countries by the end of the century. • But, factor price convergence caused rising inequality in factor abundant economies, like the U.S. • Protests of affected labor in U.S. and land in Europe—led to immigration restrictions and trade barriers at the end of the century. Responses? • American Response? • European Response? But what is driving factor convergence? O’Rourke, Taylor and Williamson (1996) • Was it the movement of goods? • Was it the movement of factors? (Or the growth of factors)? • Need to sort out these factors. • The Hecksher-Ohlin model---beyond 2 x 2 • The role of tariffs Big Differences in Levels of Protection Even protectionist countries feel the effects NB Terms of trade should include effects of tariffs and non- tradeables. Factor endowments matter: capital deepening and land deepening though the impact is larger in the New World where agriculture is bigger. A rise in relative price of agricultural goods favors return to land, greater than one (magnification effect). Productivity growth was labor saving in New World and land- saving in Old World— consistent with induced innovation hypothesis That’s statistical significance—what about quantitative significance? Multiply change in variable times coefficient. Central role of price convergence. 61% of US W/R change due to it, 42% of UK of total change in US- UK W/R change, Heckscher- Ohlin factor price equalization accounts for about half. Factor saving also powerful.